Interest rate pressures lessen as inflation falls

Inflation has fallen to its lowest level since March after figures for September showed the annual rate had dropped by 0.2 per cent to 1.1 per cent.

Significant reductions in air fares contributed to the surprise drop, which should lessen the pressure on the Bank of England to raise interest rates for a sixth time in a year.

Seasonal falls in the cost of both plane and ferry tickets from high summer levels were far greater than last year's discounts, the Office for National Statistics (ONS) said in today's Consumer Prices Index update.

Analysts had expected the rate of inflation to remain unchanged following two consecutive falls in July and August.

It is now well below the Government's target of two per cent, although the Bank of England expects the figure to rise soon.

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David Page, an economist at Investec, said the latest figure gave the Bank room to move on interest rates, which he believes will remain at 4.75 per cent for the rest of the year.

He said: "They can now take their time to see what's happening in the wider economy."